Net income for the first nine months of 2018 totaled $34.3 million, or $1.04 per diluted share.
Mr. Gundermann summarized, “We have developed solid momentum across our business over the first three quarters of 2018, with revenue up 32.5% and solid bookings to match. Our margins have been under pressure from our three struggling business, which have suffered $28.3 million in operating losses year-to-date. We believe we are making progress resolving the problems with these businesses which will become apparent as we move into 2019.”
Aerospace Segment Review (refer to sales by market and segment data in accompanying tables)
Aerospace Third Quarter 2018 Results
Aerospace segment sales increased by $40.9 million, or 31.8%, to $169.6 million, when compared with the prior year’s third quarter. Organic sales increased $20.1 million, or 15.6%, while Telefonix PDT contributed $20.8 million in sales in the 2018 third quarter.
Avionics sales were up $19.7 million, largely due to the addition of Telefonix PDT, which contributed $17.2 million. Electrical Power & Motion sales increased by $14.6 million, or 22.9%, due to higher sales of in-seat power and seat motion products. Sales of Lighting & Safety products were up $6.5 million due to a general increase in volume. Sales of other products were up $3.6 million, due primarily to the acquisition. System Certification sales decreased by $2.1 million on lower project activity.
Aerospace operating profit for the third quarter of 2018 was $16.2 million, or 9.6% of sales, compared with $13.0 million, or 10.1% of sales, in the same period last year. Organic Aerospace E&D costs were $23.3 million compared with $21.1 million in the same period last year. The acquisition added $4.8 million in E&D costs.
Aerospace operating profit benefited from the contribution margin on higher organic sales and the addition of Telefonix PDT offset by a $3.9 million program charge related to the aforementioned CCC long-term contract. Intangible asset amortization expense for Telefonix PDT was $1.6 million in the third quarter.
Aerospace bookings in the third quarter of 2018 were up 35% to $196.7 million compared with the prior year period. The book-to-bill ratio was 1.16:1 for the quarter. Backlog was $325.7 million at the end of the third quarter of 2018.
Mr. Gundermann commented, “Our Aerospace segment had another strong quarter with record revenue of $170 million, and even stronger bookings of $197 million, leaving us with a record backlog of $326 million at the end of the period. Operating margin was somewhat disappointing at $16.2 million, or 9.6% of sales, but again, this includes an operating loss of $11.2 million at the three struggling Aerospace operations in the third quarter. Progress is being made at each and we expect significant improvement at these operations in 2019.”
Aerospace Year-to-Date 2018 Results
Aerospace segment sales increased by $105.3 million, or 26.7%, to $500.4 million when compared with the prior year’s first nine months.
Avionics sales increased by $68.9 million, driven primarily by the acquisitions, which contributed $63.6 million in Avionics sales. Electrical Power & Motion sales increased $19.9 million, or 10.0%, and Lighting & Safety sales increased $6.9 million, both for similar reasons as in the quarter. Systems Certifications sales increased $2.6 million on higher project activity earlier in the year. Sales of other products were up $8.1 million to $21.1 million, due primarily to the Telefonix PDT acquisition.
Aerospace operating profit was $47.5 million, or 9.5% of sales, compared with $46.8 million, or 11.8% of sales, in the same period last year. Aerospace operating profit in the first nine months of 2018 benefited from higher organic sales and the addition of Telefonix PDT, offset by the $7.5 million year-to-date loss related to the CCC long-term contract previously discussed. Aerospace operating profit in the first nine months of 2018 was also negatively impacted by a $1.0 million litigation reserve and purchase accounting expenses. As is typical during the first few quarters following an acquisition, non-cash costs were higher than what is expected over the long-term, as short-lived intangible assets are amortized and the fair value step-up costs relating to the acquired inventory is expensed. Intangible asset amortization expense for the acquisitions was $7.2 million in the first nine months. Also related to the acquisitions was fair value inventory step-up expense of $1.3 million that was recorded in the first quarter.
E&D costs for Aerospace were $80.3 million and $62.5 million in the first nine months of 2018 and 2017, respectively. Acquisitions contributed $13.0 million in 2018 to Aerospace E&D expenses.
Test Systems Segment Review (refer to sales by market and segment data in accompanying tables)
Test Systems Third Quarter 2018 Results
Sales in the third quarter of 2018 increased approximately $22.1 million
to $43.1 million, more than doubling when compared with the same period
in 2017. A $27.0 million increase in sales to the Semiconductor market
was offset by a $4.8 million decrease in sales to the Aerospace &
Defense market when compared with the prior-year period.